Wednesday, December 10, 2008

Analogy #227: Trickle Up Strategy?

THE STORYOnce upon a time, the Meglamight Corporation needed to quickly build a bridge across a remote river. Big Bob, the CEO of Meglamight, gave the approval to send large wooden beams to the area as soon as possible, for use in the construction.

Big Bob waited back at corporate headquarters to hear word of progress on the bridge. Days passed with no news. Finally, he made a few calls and found out that there was still no bridge. He also found out that the big wooden beams had disappeared. Big Bob was furious!

Big Bob demanded to know what happened. The project manager explained it as follows: “I’d been reading about the benefits of empowering all the individuals in a company. I wanted to give everyone an opportunity to become entrepreneurial and innovative in building the bridge. Therefore I took those big wooden beams and had them ground into toothpicks. That way, I could give every individual a few pieces of the beam to innovate with. So now each employee has a pile of toothpicks and is individually innovating for success in bridge-building.

“You fools!,” shouted Big Bob. “The bridge was not the goal. It was just a path to get to the other side of the river. The treasure was located on the opposite bank of the river. While you were playing with the toothpicks, a competitor got to the other side first and already took the treasure.”

THE ANALOGYThese days, there are a lot of business gurus talking up the benefits of empowering the masses. This includes not only empowering all of your employees, but also your customers and suppliers. Yes, there are many benefits to be had from opening up creativity to a larger circle of people. It does, however, have its limits.

Taken to an illogical extreme, this process leads to what I call “trickle-up strategy”. The idea is that if you have a lot of people trying to do creative and innovative things, then a lot of interesting innovative and creative things will occur. And the things which pop out of the process, by default, become the strategy.

Well that’s sort of like saying that if I get in a car, close my eyes and hit the accelerator as fast as I can, wherever I end up becomes my desired destination. Unfortunately, if you did that in a car, you ultimate destination would probably be the emergency room of a hospital after you crashed the car.

In the story, the project manager made many mistakes in employing this trickle-up approach. First, the project manager had the wrong focus. He had assumed that having a bridge was the goal. Therefore, he focused on creativity and innovation in bridge building. The bridge was not the goal. The treasure on the other side was the goal. Big Bob would have been happy if they had just thrown the beam over the river and run over the top of the beam. It didn’t have to be a fancy or creative bridge—just a path to quickly get to the other side. By wasting too much time on perfecting the bridge, they missed the opportunity to get the treasure on the other side.

The second mistake was to diffuse the project and the resources into piles too small to accomplish the purpose. A thousand little toothpick bridge experiments are not going to get a team across the river to get to the treasure (and haul it back)

The third mistake was poor communication between Big Bob and the project manager. Big Bob was not clear about the goals and objectives, so the project manager came to the wrong conclusions.

THE PRINCIPLEThe idea here is that one needs to be careful when applying “trickle up” approaches to innovation. If done improperly, they can waste your resources and lead to random wastes of time.

Google has traditionally been one of the strongest advocates of this trickle up approach. Employees there are given great freedom to work on all sorts of little projects which they dream up. Up to 20% of an engineer’s time can be spent on pet projects. Google has spent a fortune on hiring people and supplying other resources to tackle all of these trickle-up ideas.

The results of this approach, however, have been disappointing. After 10 years, and countless experimentation, Google still gets about 97% of their revenue from the original business of on-line ads—mostly on the Google search pages. Most everything else has ended up being a dry well without profits.

Given today’s economic situation, a lot of these dry wells at Google are being shut down and fewer resources are being given to new trickle up ideas. You can read more about this in the December 3, 2008 edition of the Wall Street Journal.

The problem is not that innovation and experimentation are bad. The problem is that RANDOM innovation and experimentation are bad. It used to be considered crass at Google to talk about whether a project would eventually make money. Instead, people randomly worked on whatever they thought would enhance the internet user’s experience.

Those days may be gone. Experiments at Google are now being more closely linked to profit motives. Just as a million little toothpicks are not going to get you across the river, a million random dry holes are not going to create a worthwhile strategy.

So here are a few points to remember about trickle-up experimenting.

1. Strategic Intent Should Not Be Trickle Up.The old saying was that if you put a million monkeys in a room with a million typewriters, the random typing would eventually create the great American novel. Of course, that is not true. Great documents require great forethought. Similarly, if you want a great strategy, you must used dedicated forethought to the approach.

If you don’t know where you are going, any path looks good, but most lead nowhere. A company needs goals—an explicit description of where it is trying to go. Don’t rely on randomness to create your strategy. Instead, use your strategy to provide direction to where you experiment. Strategy comes first, experimentation second.

2. Make Sure The Strategy Is Well Communicated and Well Known Within the Organization. To prevent randomness, the experimenters need to know the boundaries of what is acceptable experimentation. In other words, if you want your experimentation to get you to your strategic goal, those experimenting first need to know what the goal is.

Don’t hide your strategic intent from your people. Shout it from the mountain tops! You are more likely to reach your destination if everyone knows what that destination is. Big Bob failed in getting the treasure because he kept his strategic goal hidden from the project manager.

To get the right trickle up experiments, one needs to trickle down strategic intent.

3. Create Critical Mass in Your Resource AllocationStrategic success typically requires winning a leadership position within a particular space. Leadership rarely comes from halfhearted efforts. It takes a large, dedicated effort within that space to win the battle. In other words, to get across the river, one needs big beams, not piles of toothpicks.

Therefore, resources should not be spread so thin over so many areas that there is not enough there to win any particular battle. Make sure your scarce resources are bunched up enough to create the critical mass needed to win. Figure out which spaces need to be won, and load up your experimentation in that area. One of the criticisms of Microsoft’s failed approach to the internet is that they have done a little bit everywhere rather than pick a few concentrated battles where they could win.

It’s okay to start up a lot of small experiments within the space you are trying to win. However, one needs a process to quickly weed out the losers, so that more resources can be given to the potential winners.

4. Profits Are Everyone’s BusinessCapitalism is about profits—getting a return on your investments that is greater than the resources you put in. This includes experimentation. Not that every experiment must turn a profit, but the overall trickle up movement must as a whole be a wise investment.

Just because Google is profitable enough to waste a lot of money and get by does not make it any less wasteful. Waste is waste.

So in addition to keeping a strategy focus in front of the experimenters, keep a profitability focus there as well. Some of the experimenter’s rewards should be linked to profits.

In the story, the experimenters were ignoring the treasure and just fiddling around with toothpicks on the wrong shore. Had they been focused on the prize, they more likely would have gotten there.

It’s hard for an army to win a war if only the Generals are concerned with winning. All of the soldiers need to be committed to winning as well. Similarly, it’s hard to make a profit if only the top executives care about making money. Everyone needs to think at least a little about it.

5. Don’t Micromanage the ExperimentsIf the first four points are in place, then let the experimenters go wild. Don’t micromanage them. Most of the greatest inventions have a bit of wild abandon in the process.

SUMMARYTrickle-up experimenting is a terrible way to create a strategy. It may, however, be an effective way to implement a strategy. This requires that the strategy is well known by the experimenters and that experimentation resources are clustered at the places which will most likely create a profitable success in achieving that strategy.

FINAL THOUGHTSOnce when I was in a college chemistry class, I got bored with the lab work, so I started randomly mixing chemicals. All of the sudden, the chemicals in my beaker started bubbling. They foamed up and spilled all over the floor. Not exactly experimentation at its finest.

About Me

I have over 25 years of experience, having worked in strategy with a number of leading US retailers. You can learn more about me by visiting my digital resume (www.VisualCV.com/geraldnanninga) of the site for consulting (http://planninga-from-nanninga.webs.com)